In late 2016, the U.S. Securities &
Exchange Commission’s (SEC’s) “
floating NAV” rule required many treasury
functions to adjust to a slightly-less-stable net asset value (NAV) for prime
money funds. Similar, though less
stringent, money-market fund reforms
take effect in the European Union in
January 2019. These changes help explain why 9 percent of survey respondents modified the verbiage in their
corporate investment policy to reflect
prime funds’ floating NAV, and why 17
percent of treasury functions eliminated prime money market funds as a cash
investment option.

Other changes to corporate investment policies, including adding
new asset classes and ratcheting up
enforcement of the rules, reflect responses to the changing interest rate
environment. Companies that moved
away from prime money market funds
obviously needed to evaluate bank deposits, treasuries, government money
market funds, or other alternative assets. As interest rates climb, Berkowitz
notes, “scrutinizing your investment
portfolio becomes all the more important due to the larger potential yield
you’re sacrificing by not managing it
efficiently with the best possible investment options.”

Looking Ahead, for Yield

In cash and short-term investment
decisions, treasury functions generally
place the highest priority on safeguarding principal. Once they’re comfortable
that their investment options are acceptably stable, their attention turns to other
rungs on their hierarchy of cash management needs—specifically, maximizing liquidity and maximizing yield.

That’s the trend we’re seeing now.
Since the financial crisis, corporate treasury teams have invested substantial effort in safeguarding principal through
such actions as process improvements
and counterparty risk reviews. This work
has paid off, so now, as interest rates
rise, many treasury functions are adjusting their cash-management objectives.
Survey respondents prioritize their goals
for cash and short-term investments as
follows:

Keeping Cash Abroad for Now

As treasury groups execute on these
priorities, they are not planning to repatriate a lot of funds. Among the 59 percent of respondents whose companies
have cash or short-term investments
overseas, three-quarters (76 percent)
indicated that the proportion they hold
abroad will not change significantly
over the next year. Among those that
will make changes, 12 percent expect to
make a small reduction and 10 percent a
significant reduction in the proportion
held abroad.

Given the potentially messy Brexitdivorce and a looming EU tax overhaul,among other factors, treasury functionswith short-term investments in Europeand elsewhere overseas should remainon their toes. “High volatility in theforeign exchange markets continues tochallenge corporate treasury organiza-tions,” Ruiz-Singh reports. “The abil-ity to pull insightful foreign exchangeexposure data easily and with accuracyappears to have become an increasingpriority.”Overall, survey respondents do notexpect U.S. tax reform to be a leadingfactor in determining the size or loca-tion of their cash reserves in the coming

How have your organization’s cash reserves changed insize over the past year?Over the past year, which one of these factors has had themost impact on your cash reserves?Figure 2: Changes to Cash Reserves 2017–2018